Correlation Between Microsoft and China Food

Can any of the company-specific risk be diversified away by investing in both Microsoft and China Food at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and China Food into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and China Food and, you can compare the effects of market volatilities on Microsoft and China Food and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of China Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Food.

Diversification Opportunities for Microsoft and China Food

0.1

Correlation Coefficient

Microsoft  China Food

Average diversification

The 3 months correlation between Microsoft and China is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Food and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Food and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with China Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Food has no effect on the direction of Microsoft i.e., Microsoft and China Food go up and down completely randomly.

Pair Corralation between Microsoft and China Food

Given the investment horizon of 90 days Microsoft is expected to generate 68.22 times less return on investment than China Food. But when comparing it to its historical volatility, Microsoft is 16.87 times less risky than China Food. It trades about 0.02 of its potential returns per unit of risk. China Food and is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.90  in China Food and on October 23, 2024 and sell it today you would lose (0.20) from holding China Food and or give up 10.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  China Food and

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

China Food

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Food and are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, China Food reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and China Food

The main advantage of trading using opposite Microsoft and China Food positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Food can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Food will offset losses from the drop in China Food's long position.

The idea behind Microsoft and China Food and pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.